Post-pandemic dollar and risk of global debt crisis - LEVENT YILMAZ

Post-pandemic dollar and risk of global debt crisis

The second wave of the Covid-19 pandemic is spreading rapidly all over the world with the exception of China (!). Meanwhile, some success stories from vaccination studies are pushing economists to prepare for the post-pandemic period. There is both good and bad news, based on what we can interpret from information we have now.

WHAT WILL THE DOLLAR'S STATE BE AFTER THE PANDEMIC?

The pandemic rages on and so do its ramifications on economies. The reimposed lockdowns continue to place heavy burdens on the countries’ treasuries and central banks.

As such, many central banks, especially the U.S. Federal Reserve, are implementing a loose monetary policy. However, it is thought that these policies implemented in today's conditions can reduce the value of the U.S. dollar in a snap should a breakthrough happen with regards to vaccination.

Citibank, which has published a report on the subject, states that when the widespread distribution of vaccines developed against Covid-19 begins, in an environment where the FED cannot tighten its policy fast enough, the U.S. dollar may lose about 20 percent of its value in 2021.

WHERE DOES THE GLOBAL DEBT STAND?

As my readers will surely remember, from time to time I sound the alarm in this column about the issue of the accumulated global debt and share my concerns that the public share of this debt carries the risk of non-payment over time. At the point we have reached today, I’ve only gotten more worried about this.

According to the "Global Debt Monitor" report published by the International Institute of Finance (IIF), as of the third quarter of the year, global debt increased by $15 trillion to over $272 trillion. The report points out that this figure will hit $277 trillion by the end of the year as public and corporate debts continue to increase significantly. This figure corresponds to 365 percent of the global GDP. Terrible!

$76 trillion of the aforementioned $277 trillion debt is owed by developing economies. This is even worse!

RISK OF GLOBAL DEBT CRISIS

The impact of the pandemic on economies, together with the policies implemented by countries in combating this impact and the worsening global debt all bring with them the risk of a serious debt crisis for the post-pandemic period.

World Bank economists, who published a report titled “Global Debt Waves” on the subject, point out that a debt crisis looms in the post-global recession period.

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